Randy Frederick on Chasing Profits

Randy Frederick discusses his thoughts on chasing profits.

Well, new investors sometimes get in the mindset of chasing big wins, and I don't use a lot of sports analogies, but I think this is one of those situations where it's a really good time to do that, and that is think about a baseball player, those who swing for the fences and hit a lot of homeruns also tend to have a relatively low batting average and very high strike-out average. On the other hand, there are also players who have very high batting average, they may not hit a whole lot of homeruns, but they hit a lot of singles and they get a lot of RBIs. Well, if you're an investor, what I've found in talking to many, many investors over the years, is that very few of them have the wherewithal, the risk tolerance to deal with multiple losses just to get to that one big win. What works better for most investors, really, is to to do a lot of smaller trades that are intended to just have fairly small profits. So they're low-risk trades and low risk trades have a tendency to have a higher probability of profit, but then when the profit is earned it's a little bit smaller, and oftentimes, as you know in baseball, again, multiple hits will get a run just like a homerun will.

So, for investors that are looking for the same results, it just may take a few more extra trades for them to get there, but ultimately most people have a better tolerance for that type of investing.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

This discussion is provided for illustrative purposes only, and should not be considered an individualized recommendation or personalized investment advice. The strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation.

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